Ten Ways to Improve Inventory Management

There's more to streamlining inventory levels than the standard advice, repeated ad infinitum, of applying "just-in-time" techniques, as Bain & Company notes in a short piece it provided on the topic.

Bain consultants Pratap Mukharji and Sam Israelit note:

As CFOs know, getting inventory levels right is vital since it not only controls costs but also serves as a barometer of a company’s overall health. The best supply organizations deploy sophisticated analytical tools to reduce inventory levels by 20 percent to 50 percent, resulting in savings for years.

To get there, Mukharji and Israelit suggest that one way CFOs can improve their performance in inventory management is to use teams from across the organization, rather than relying only upon the sourcing department to help determine the optimal frequency for producing or ordering products.

Mukharji and Israelit argue that campaigns run by marketing departments can impact inventory levels as much as sourcing departments. While lot sizes are properly determined by production departments, usually calibrated to minimize production costs, the authors note that production and ordering schedules should be set by teams that represent both marketing and sourcing.

"By weighing all factors and using a sales and operations planning process," they write, "cross-functional teams often reduce the company’s replenishment stock by 50 percent and ensure that the right products are available for big promotions."